Turkey’s trade minister Bolat announced preliminary September foreign trade figures on Wednesday. Mirroring the sudden collapse in ISO – S&P500 Global manufacturing PMI, which dropped by 4 points in a month to end at 44.3, exports recorded a small decline, along with imports. On the other hand, imports of consumer goods broke a new yearly record. On top of higher than consensus CPI data released today, the poor production and export data highlights several important misalignments in economy, requiring tightening of the austerity program.
According to Ministry statement:
Minister Bolat stated that the foreign trade deficit was 5,1 billion dollars in September and said, “A foreign trade deficit of 5 billion 95 million dollars was recorded in the same period last year. When we compare both years, there has been a very limited increase in our foreign trade deficit.”
Noting that the foreign trade deficit decreased in 14 of the last 11 months, Bolat reported that the deficit decreased to 17,4 billion dollars in the third quarter compared to the same period last year, and the export-import coverage ratio increased by 8,5 percentage points to 79,2 percent.
Bolat explained that the export-import coverage ratio was recorded as 81,1 percent in September and made the following assessment:
“Exports in the first 2024 months of 9 increased by 3,2 percent compared to the same period last year, reaching 193 billion dollars. Thus, in the first 9 months, there was a net increase of 5,9 billion dollars in exports of goods. During this period, imports decreased by approximately 8 percent, falling to 252,9 billion dollars. Thus, there is a net decrease of 21,6 billion dollars in our imports.”
ANALYSIS
The outlook for exports is grim. Low-value added items are suffering from a rapidly appreciating TL in inflation adjusted terms, while Turkey’s main markets, namely, Germany, UK, Russia and the Middle East are suffering from poor demand for various reasons.
The rise in consumer imports reveals the main problem with pursuing a strong TL policy without commensurate declines in inflation, which soared to 2.9% in September, and just a tick below 50% for the last twelve months: Imported goods are becoming cheaper in TL terms for the upper class.
Additionally, the decline in imports is not significant enough to signal that domestic demand is slowing to a degree that will precipitate disinflation at home. Further monetary and- more importantly- fiscal measures are needed asap to bring domestic demand in line with imploding production.
At the end, given the first batch of September data, which also contained a private sector measure of consumer confidence soaring to a three-month high, rate cuts widely expected by a majority of experts to take place in November and December are now out of question—economically speaking. However, CBRT might still initiate its monetary loosening cycle, coming under pressure from the business community, or worse by Erdogan.
Turkey’s Mehmet Simsek led austerity program is in jeopardy. It has been on auto-pilot for months under the expectation that the economy will slow down on its own devices. It hasn’t. It won’t because, at the turn of the year civil servants’ wage and salaries, the minimum wage and pensions will be increased at least 25%, or even 30%, based on rumors coming from the Treasury and Finance Ministry.
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